What’s the difference between fundamental analysis and technical analysis? And which technique is better?

How do analysts figure out how to make money from shares? And to make investment decisions based on calculations. Well, there are two popular techniques. They are fundamental and technical analysis. Let’s take a look at the differences between the two approaches. And try to see which is better at making you money.

What is fundamental analysis

Fundamental tries to estimate the intrinsic value of a company by looking at its financials.

Fundamental analysis also looks at the environment the company operates in.

This includes taking a look at the industry the company operates in and the economy at large.

Proponents of fundamental analysis try to make money from the markets by finding shares that are undervalued and which they think will rocket in price.

What is technical analysis

Technical analysis, on the other hand, doesn’t concern itself with a share’s intrinsic value.

Technical analysis tries to predict changes in share prices by studying graphs on which you would plot prices and sometimes trading volumes.

Technical analysts examine the price action of the stock market, instead of the fundamental factors that might impact share prices.

Now, it’s important to understand that a number of assumptions underlie technical analysis.

The first is that supply and demand alone determine the market price of a share.

The second assumption is that both rational and irrational factors drive supply and demand. By rational factors, we mean economic variables and by irrational factors, we mean gut-feel, moods and guesses…

Technical analysts believe share prices move in trends, which persist for long periods, and that you make money by correctly guessing when these trends will change.

These trends will change based on supply and demand, and you’ll be able to spot them by the action of the market.

It’s up to you to choose which approach you think is the best. Or if you prefer a combination.

The truth is, no-one can prove that either approach is better… It is all a matter of preference.